IBM and Satyam

The rumors have been floating for a few weeks now. IBM plans to acquire Satyam (or at least a major stake in), the 4th largest Indian offshore player.

Satyam is strong in several manufacturing markets and has one of the better packaged application practices of the Indian firms. It has also done a poor job marketing itself compared to the other Indian firms and IBM would clearly turn that around. But IBM inconsistently positions its own growing India operations, so I suspect integration will be a challenge.  And IBM will have to quit the double speak to customers about not being in India for lowered costs and reluctantly passing those along. It will also pressure Indian firms to step up their own western acquisitions to accelerate market share growth.

If the transaction goes through, it would dwarf recent Indian investment by western technology firms - EDS with investment in MphasiS, Cap Gemini with Kanbay and Oracle with i-Flex.

Comments

[Cem Basman]

There had been a lot of speculations about this in January 2006. But what indicates now in December that this could be still a deal?

[vinnie mirchandani]

Cem, it is specularion but if I had not heard from 3 different people in the industry who do not know each other...I would not have even bothered. IBM does a number of acquistions a year and I hear many rumors.

[Phil Fersht]

Vinnie,

Interesting story, but I doubt anyone is going to acquire over-inflated Indian firms in this current "Indian bubble". We are seeing several Indian firms currently enjoying up to 30x multiples currently and these will surely go down to at least the 20x range over the next few months. Moreover, we are also getting an increased number of fabricated stories from Indian press recently which we need to take with a bucket of salt, for example:

http://www.globalsourcingnow.com/newsdisplay.asp?newsid=14451&strProName=GlobalSourcingNOW

This story turned out to be completely bogus and I believe the publication is even having to publish a retraction. I do agree with your point that the Indian providers need to acquire Western providers in the short term if they are to truly take advantage of their increasing global status - and I see these acquisitions as more likely scenarios. I am hearing several loud noises from the leading Indian providers that they are going to make soime interesting moves early next year and have the cash-backing ready to make their moves.

[Cem Basman]

I'm not quite sure, if this rumors are good for Satyam, Phil. A customer would not like to place a order at a company whose future are not clear. Except maybe in this case traditional IBM customers maybe.

In general, the Indians are moving into the Western markets (and massively into China as their own prolonged workbench) and they have to buy (midsized) local service providers or captives to gain significant momentum in the Western markets of course. If you want to make business with America you have to be American, if you want to make business with Germany you have to be a German etc.

The beachheads in the US and Europe are already concered. Within 2007 they will have made major expansions and will be established well. Now, what thrills me is the question "Who will run with the pack?" ... ;)

And don't get me wrong: I'm a supporter of the globalization.

[vinnie mirchandani]

Phil, Cem - logically does not make much sense. IBM's recent acquisiton spree (mostly in s/w) has been to buy more mature products past their valuation peak. (With Daksh they broke that pattern but it was relatively small acquisition) IBM is itself building lots of capacity in India. I think the current round of speculation may have been reinforced by a JP Morgan scenario analysis of the potential merger. I look at market from a buyer POV so would like to understand more how it will impact pricing and delivery...